Property Management

Should an Investment Property always Cash Flow?

Too often I’ve had people tell me something like, “If my property is costing me around $100 every month it’s not even worth keeping it.” In the world of Real Estate, jumping to such a conclusion, could be the wrong decision. Let’s walk through this.

Having monthly cash flow might be ideal, but the way to get it may not be. It really depends on the situation. For example, in Utah the market is pretty high. Real Estate is kind of expensive. If you were buying an investment property with an average down payment, your mortgage payment might be a little higher than what you can rent the property out for. You can’t change the rental market to be able to charge more rent. If you tried to over charge, you will have a hard time finding a tenant and ultimately lose money by having the place sit empty. Your other option to make the property cash flow could be a bigger down payment to reduce your monthly mortgage payment. Although, that may not be ideal or even possible for everyone. It depends on your situation. So, if it is not cash flowing, does that mean it is a bad investment property? If so, that would mean Utah would be bad place to buy investment properties and that is certainly not the case.

Sometimes, your investment property needs some investing. Think of it like a retirement account that you might have. To help it grown, you make contributions to it. If you never contributed to it, then it wouldn’t have anything to grow from and you essentially don’t have an investment at all. It’s the same logic for an investment property. If you just sell it, or never buy it, because it costs you some money each month, then you lost sight of the big picture. Here is a common scenario to make the point clear. If that home is valued at $350,000 and is appreciating in value, at 5%-15%, it would be gaining in value around $17,000 – $52,000 every year. Isn’t that worth a small monthly contribution? Absolutely!

Keep in mind, rent also appreciates and your mortgage payment does not. So, after 1-3 years the rent will probably have increased enough to start giving you that monthly cashflow. Now imagine, ten years down the road. Your property has increased in value by maybe $200,000 and it’s been paying you hundreds of dollars a month for several years. You will be sitting pretty good and feeling glad you stuck with it through those first few years when it felt a little tight.

So, yes. Cash flow is nice but it’s not everything.

At Kasteel Property Management we do more than just watch your rental property. We protect it, cultivate it, and help your investment grow.

Please leave a comment below and happy investing.

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